CEO INSIGHTS – Week Ending 10 Mar 2017 BY NAOS Asset Management

“The single most important shop we have in the world is our dotcom store” Kasper Rorsted, CEO, Adidas

As part of the NAOS investment process, we pay particular attention to the comments made by company CEO’s and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.

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Energy Crisis / Oil & Gas

"If you run a business over a number of different countries as we do, you have got to look at your cost of operations and where you are going to put your manufacturing. Our gas price in the US [Midwest] is less than half the Australian price and our electricity price is probably less than half the current pricing in the Midwest”Nigel Garrard, CEO, Orora

"I don't believe there is adequate supply of gas to the market unless those LNG trains can push gas south rather than export. If there's an exceptionally mild winter then we could scrape through, but if it's a cold winter, no. We are actually out of contracted gas, we don't have any left in our portfolio"Richard Wrightson, Head of Wholesale Markets, AGL

“We have two [gas supply] offers on the table. One supplier offered a 100 per cent price increase, the other 216 per cent”Penne Kehl, MD, Cargill Australia

"We are paying around three times the amount for gas as a similar situated firm would in the United States"Malcolm Turnbull, Prime Minister, Australia

"We have yet to see an invoice, they will be coming in the next few months, but I'm bracing myself for a huge increase. We are in the process of reviewing bringing back work to Australia out of China due to the cost increases there, [but] with a large rise in our primary input costs maybe we need to reconsider”Graham Lee, National Operations Manager, Alchin Long Group

“We cannot reduce [our electricity demand]. If electricity and gas prices triple there's going to be a lot of people in trouble"Garbis Simonian, MD, Weston Aluminium

"We have to grow to be competitive and to be ahead of the curve, but when the spot [electricity] price went to $14,000 we had to take that load off. It's just not sustainable. You can't smelt at that price. We have to curtail or modulate the load or we get hammered by the price. We cannot continue to keep paying those prices. We have to find a solution. The prices are crippling”Matt Howell, CEO, Tomago Aluminium

"This [increase in gas prices] is the biggest impact for manufacturing in the last ten years. It's devastating for so many people and the flow on to our suppliers"Paul Ross, CEO, Remapak

Retail

“The single most important shop we have in the world is our dotcom store”Kasper Rorsted, CEO, Adidas

“We are trying to move the conversation with the consumer outside bricks and mortar ­retail”Luke Baylis, Co-founder, Sumo Salad

Banking

“We don't believe a royal commission is necessary because the industry is well governed, well-regulated, and is addressing the issues that need to be addressed”Andrew Thorburn, CEO, NAB

Housing

"[In relation to house price growth in Sydney & Melbourne]…There are increasing risks, but I still believe 'no' [house prices are not overvalued]"Andrew Thorburn, CEO, NAB

"We certainly agree that apartment prices in Sydney and Melbourne are very high"Brian Hartzer, CEO, Westpac

"What we are seeing is a number of those foreign buyers who put the money down to buy the [lower quality] apartments are now having trouble settling and that is creating a bit of a glut in supply which may or may not be what the local buyers want"Brian Hartzer, CEO, Westpac

“What we’re seeing in Sydney and Melbourne is the consequence of severe supply constraints running into a significant step up in demand — albeit that’s attenuating a little bit now — from offshore buyers”Brian Hartzer, CEO, Westpac

“We are picking up some [customers] from the CBA [as rates on property loans have risen] and refinancing across the four major banks. Borrowers seem more willing to scout around for the best deal"Martin Barrett, CEO, Auswide Bank

“Many lenders have already increased rates for home loan products, and there are increasing signs that we are headed for a higher rate environment internationally. This rate increase is in line with these reasonable market expectations”Brad Hedgman, Deputy CEO, Teachers Mutual Bank

Groceries

“We have been clear with investors that price is really important, but it is not enough. Price is important, but when you come to Woolworths you have got to trust that you will get a great price, but then everything else becomes important’’Brad Banducci, CEO, Woolworths

Domestic Tax

"From my point of view, Australian tax rates are high, personal tax rates are high relative to comparable economies and company tax is very high, and those relativities are likely to worsen”Malcolm Turnbull, Prime Minister, Australia

Global Economy & Consumer

“We've entered 2017 from a position of strength, as macroeconomic fundamentals remain favorable and are aligned for another solid year of home improvement industry growth. The industry is poised to grow its share of wallet as a percent of overall consumer spending and should benefit from strong consumer balance sheets and debt service ratios near record lows, as well as continued job gains and income growth. Credit use continues to improve, supplementing the spending power generated by stronger incomes”Robert Niblock, CEO, Lowe’s

“We expect housing in 2017 to remain a bright spot. Rising home prices should continue to encourage homeowners to engage in more discretionary projects, in addition to ongoing maintenance and repair spending”Robert Niblock, CEO, Lowe’s

“At the beginning of the first quarter, equivalent market statistics from many countries around the world show that the energy category is continuing to grow”Rodney Sacks, CEO, Monster Beverage

Other

"I believe that the 2020s will be the decade of the transport revolution. This means over the next five years, industry and government will have to prepare for the biggest transformation of the transport sector since Henry Ford's Model T rolled off his assembly line”

Scott Charlton, CEO, Transurban

"NBN is not only the owner and maintainer of much of the access network but also practically the only provider of wholesale products to retail providers"Report by OECD

"The agriculture industry (in Australia) is on the edge of an agtech revolution; these technologies have the potential to dramatically shift the way people and data are connected across agricultural ecosystems, processes and supply chains”Jonathan Davey, Executive General Manager, Nab Labs

"Any brand that thinks they have a loyal following needs to revisit that assumption… Our brand loyalty has shifted. We as consumers are still very much consumers. We're not going to change. But we are heavily immersed in the world of digital and technology. With that comes our perception of the brand”David Rohrsheim, General Manager ANZ, Uber